Dylan (02:13):

[inaudible]

Zach (02:13):

Listening to the rich ad poor ed podcast, where we break down the financial principles that rich advertisers are deploying today to turn advertising into profit and get tons of traffic to their websites without killing their cash. These advertisers agencies, affiliates brands are responsible for managing over a billion dollars a year in ad spend. You'll hear about what's working for them today. They're rich ads and we'll roast their Epic failures and crappy ads on the internet with core ads. Let's get into it. Welcome to another episode of the rich dad. Poor dad podcast is your host sack Johnson, and I'm with the one and only Dylan Carpenter. How are you doing Dylan? Good

Dylan (02:49):

Man. Good. This is going to be, uh, this

Zach (02:51):

Is going to be a solid one today. Yes, yes, yes, yes. We're going to be diving deep into subscription, CAC LTV, payback periods. I'll uh, I, I'm so excited about today's guests, um, is, uh, is quite a legend in this space. Uh, I'll give you a little bit of background Dylan on them and we can get them on here. But um, so Boogaloo group check out Bula group.com. These guys, uh, I think are like the Kings of subscription box. They have worked with some of the biggest names in subscription box from GNC to Disney, to, uh, some even bigger names that they're working with now. And, uh, the subscription box arena is so heavy in, um, logistics and cash and payback periods and finances are really, really, really big part of it. And so I feel like today's guest has completely, um, mastered it. And it's also really interesting to see what they're doing now with, uh, taking subs subscription boxes to the world of employee engagement and rewards. Uh, now that you know, a ton of people are working remotely, uh, I felt like everybody in subscription box has been so focused on DTC, everything consumer related and our guest today is just going, um, in all the different pockets that, that subscription box companies aren't, which is, you know, just came off of a ton of big contracts with super high, uh, uh, corporates to, to now going into pretty much, um, like full-blown B2B mode. So, uh, what do you think, Dylan? You excited? Yeah, man, a hype is real

Paul (04:42):

Magic happen

Zach (04:45):

Without further ado. Paul Jarrett. Welcome to the show.

Paul (04:50):

Yeah. Oh yeah. I got to fact check you right out the gate. So I looked up, I looked up Dylan Carpenter. You said the one and only I counted seven. Dr. Dillon carpenter. Who's number one. So, um, yeah, like, uh, yeah, like audio, like we don't do fact checking here. You're like the first person

Zach (05:21):

Market or math. We do a lot of rounding to the nearest million and

Paul (05:25):

Marketing and advertising the opposite effect. Awesome. Thank you guys so much for having me on the show. I'm super stoked to be here and I always love like podcasts. I have a little bit of meat to them. They're like, talk to me about culture,

Zach (05:44):

Man. I, uh, you're also, you know, a recovering agency guy. Right. So you said you, you and your wife had been a part of what was it? Seven or nine agencies?

Paul (05:55):

Yeah. Between the two of us nine. Uh, I've done everything from, uh, count direction to new business development. Did a stint as a copywriter. Um, she's mostly on the creative side, but she's been an account manager, creative director, um, worked on Pixar, uh, you know, between us nine agencies and brands like Nike Lowe's Pixar, Jergens band Carell. So yeah, we've New York to San Francisco and everywhere in between. So we, we thought we were going to open an ad agency one time and then we thought, uh, uh, let's do something a little bit more tangible product in product out.

Zach (06:31):

There's a thing that like the, the word agency is completely overused today. I just want to highlight what type of agency like we're talking, you know, it's New York.

Paul (06:42):

Yeah. Like, like literally Madmen was based off of BVDO where I work. So I mean, we, I mean, we went for it and we, you know, did the quote unquote, like we made it to where everybody wants to work in advertising, right?

Zach (06:56):

Yeah. I mean, it's, it's awesome to see how you're bringing that into, you know, what you're up to now with Bula group, because nobody in subscription box, you're like the only person that's just like, Oh yeah, I've got the balls to go do a partnership, uh, and do a full, you know, turnkey solution with Disney and GNC. And it's just like, that requires some serious salesmanship and some business development skills that, uh, uh, yeah, that like, I feel like we could, we could spend a whole episode just kind of having you come back and teach BizDev, but we're going to talk in a, I want to focus the conversation really around, uh, something you said right before the show, which is subscription Brock's is pretty much just a logistics and finance company, like at its core. And, uh, and you pretty much have to, you know, you list it off like a set of skills. Right. So like maybe share, share that, recap that, because I feel like that's going to be, uh, the, the theme of our entire conversation here.

Paul (08:03):

Yeah, for sure. So we started off, uh, back in 2011, kind of with the idea of Bulli box. We executed in 2012 and blue box was a straight up subscription box. We literally said it's like Birchbox, but for vitamins and supplements, uh, we grew to about 500 K monthly recurring revenue. And about two years, uh, we had all the CAC to LTV. We did all that. Um, we just couldn't find the appetite out there. You know, dollar shave club hadn't been sold, Birchbox was tanking. And the attitude of the market where subscription boxes are a fad, which I was just screaming at the top of my lungs. Like it's just, e-commerce with a focus on repeatable delivery. Right. Um, and then in the midst of all of that, we actually built a software called Hulu marketplace, which was basically linkedin.com, but for consumer packaged goods and it was focused for buyers, um, somebody acquired that.

Paul (08:58):

And so we went back to the drawing board and said, okay, like, what do we do? And we, we literally said, well, we're really good at packing boxes. Uh, what do we do with that? And, um, you know, few brainstorming sessions later, um, and you know, me waking up and realizing how many emails in my inbox are from Walgreens and GNC and, and companies interested in it. And I was given some bad advice of just ignore those people and your response should be, if you want to acquire us, you can acquire us. If now we're going to keep working. Um, and so instead I picked them up and give them a price and, um, it was kind of, you know, off to the races. And then we eventually, I think three years ago dropped Bulli box. Um, and we just exclusively did turn key subscription box solutions for large companies.

Paul (09:47):

And now, as you mentioned, we're kind of, you know, offering those services to really any, and everybody that want to do any sort of like subscription box or really specialty fulfillment. So sales, bundles, kitting, et cetera. And we do our own software. Um, and, uh, we, you know, make sure we talked to everything and, um, yeah, that's, that's where we're at it. And, you know, I'm, I'm always, as far as the, you know, when did the change occur? I would say, um, you know, when we decided to work for large brands and frankly, we kind of weren't you, we had sold a company, we, you know, blue box was profitable and we landed a big client pretty early. Um, we then had the luxury of kind of going like, okay, you know, we can't just survive. Right. We have to, how do we thrive? What do we need to do?

Paul (10:37):

And, um, one of the first things I did was go out and literally hire people that in no way, did I ever believe that these people would work with us, but it was a lot of finance and logistics and accounting people, which I knew we were weak on. Uh, you know, I think for many years we thought we were great at it. And then over time you see, you know, the skills that are out there. And so there was a lot of, uh, blindly coming over our QuickBooks to, you know, accountants and finance and, and corporate people. And, um, the ones who kind of, you know, sifted through everything and saw the opportunity. I mean, they're pretty good about coming back. And, um, you know, there was no aha moment, um, until we were actually doing it, but there was just seeing somebody that can actually make true projections and seeing a team that can really whip up Excel.

Paul (11:29):

And so, you know, we had a team that had all the knowledge and we just needed a team to come in and to organize it and say, okay, so, you know, five years from now on this current trend, here's where these companies will be, you know, six months from now, we're going to use this tape no matter what, where you use these labels, no matter what. So let's buy X amount and get them at this price. And, um, terms was a big deal. We never thought we were big enough to get terms and, um, better terms. And, you know, one of the first things we started doing was like 60 day terms, um, you know, take money, fast, pay money, slow, right?

Paul (12:06):

Just kind of like everything just became painfully apparent that just like your personal bank account, where you get Starbucks every day, that adds up, you know? And, um, you know, having people come in and really tightening that up and, you know, my God, just the number of softwares that we had signed up for, or never use. And we're just getting gamed. I mean, we're talking like thousands of dollars every month that was just slowly eating away at us. And it just, you know, when things started operating better, I went, Oh my gosh, you really have to think about logistics first and really get a firm grip on your cashflow because subscription is all about the future. And you know, it's not in the now. And when I talk to, and when I look at other subscription boxes, which I almost talk to daily, it is so obvious that people were in my shoes where they're like, well, if we just get this product right, or if we just get the marketing, right.

Paul (13:11):

And I'm like, dude, I hear you. I understand I've been there, but I'm telling you, if you don't start biting the bullet and buy an X amount of cardboard, you're going to get gouged. You know, you're going to get screwed in. And once we were able to truly sit and thoughtfully, think it through and create, you know, models, et cetera, the game just changed. And, um, this is not a sales pitch, but I will say if you go to blue group, a Bula group.com, there's a financial modeling tab. Um, we literally are selling, um, an Excel document of our it's a template for our subscription model. And I tell people the subscription box, model template.

Zach (13:56):

I was just going to interrupt you right here, this financial model. I'm just looking at the screenshots of it right now. And, um, these financial models, if you were just to pay, let's just say an Excel jockey, right? Unless you say the Excel jockey did not know what he was doing, this would probably cost you four or $5,000 to get an Excel jockey, to build, not even including the expertise of like even model it out. And what are the important things to highlight and do roll-ups and projections. And I felt like this financial model, you can easily throw in another 15, 20 grand of expertise here on top that you're selling for $95.

Paul (14:39):

Yeah. And it's funny, the story behind the price is actually pretty funny, but there's also a YouTube video where we literally have the, like head of our, um, uh, client services. She literally just walks through and painstakingly says like, you know, the, the document, I'm all about notes and Excel, right? So the document really has a lot of good notes in it. But even if you can't sit and read quick, they're like, you can just literally watch a YouTube video on how to fill it. Right. Um, and we do, um, for years it was a twenty-five K fee for brands to have us do that. Our model internally, it was a little bit more elaborate and customize. And so, uh, because we have new for each of those big brands, make it a little tinker with it, for them, but the base model, I mean, it's all there.

Paul (15:24):

And then we put it in, nobody bought it at 25 K right. And then we put it at zero and like nobody bought it at, you know, downloaded it for that. And so we, after a lot of AB testing, $95 is the price that people actually download it. And so the, the idea was, I mean, honestly, when COVID hit, there was a big, Oh moment for us. And so we said, well, let's just start sharing our knowledge and see what happens. And that was the story behind that document COVID hit, that would never be available. Um, had people downloaded it at different price point or for free, we would have it, but 95 bucks. And the funny thing is, is like, you can literally just email me and I'll give it to you for free. I handed out like, you know, whatever. And there's been people where they pay and I literally just reimburse them in email on I'm like, yeah, I'm sorry. I can charge you for this. I'm giving it out for free.

Zach (16:18):

The here, here's the way I look at your, your journey from the outside Paula. It's like, Hey, we did this blue box thing. And out of that force you to create, be able to create these financial models so that you can track your forecast, your churn, your CAC, to LTV your cash required. And then your, that spreadsheet was your first attempt at like solving your own problem. And then your second attempt was like, Oh, maybe I should just go partner with Disney and GNC where they don't even have this problem at all.

Paul (16:51):

And the problem was actually like when we started, we were the sixth subscription box and it was like 28 cents to get somebody, you know, and then it just kept growing and growing. Now the average is I think about 37 bucks to acquire a customer. And when we raise capital, our highest projection was like $12 to acquire a customer. Um, and we thought that was outrageous, but the competition came and before you knew it, there was 7,000 subscription boxes not to mention with subscription boxes. You're still actually fighting other subscriptions like Netflix and magazines and subscription is like a category in somebody's mind wallet. Right. And so, um, when, when the CAC went, so I we're just like, okay, like, how do we solve for that? And that was like a big brands have money and they have assets. Like if they literally just like POS assigned in their store, like, it'll be fine. And that's really where, where that came from.

Zach (17:45):

But would've said, I'm going to go to get, um, I'm going to go get money from an like VC, right. Or I'm going to go get money from, from clear bank and Shopify capital and just kind of keep getting money every three to six months. Uh, but you, you know, you, you built a Bula box and then you basically said, exited stage left of like, I'm going to solve this like the right way. And now what you're up to with employee engagement, it's like that, that, that customers are acquired as an employee.

Dylan (18:16):

Sure.

Zach (18:20):

Right. And, and, and you're, you're just like advertising is, is not even an issue there. So you're kind of just taking all the logistics and finding the pockets within subscription where this issue of, Hey, back period and cashflow is just a completely, a complete non-issue because at the end of the day, the numbers just keep getting bigger and bigger and bigger. And it's subscription boxes almost like not to, not, not to the point of like, lending, like, like what we do at ad capital, but you have to be just as good at fundraising and getting money in met, uh, and managing that cash, like in order to scale that in a big way.

Paul (19:03):

Yeah. And we explored, you know, I just kind of, uh, to, to have like, uh, I'm not sure if we can call center. So let's say like F it, we're not going to work with banks grew up in a trailer park. And I saw a lot of El Caminos repossessed, and I was like, not going to work with a bank. Um, and then after raising two rounds of capital, I was just like, I'm kind of done with the VC world for now. Um, you know, and so we kind of explore those other options. And I was like, honestly, the easiest thing looks to be go target people with ad budgets. Like, am I going to spend my time raising capital? Um, or am I going to spend my time dealing with banks or, um, building something and I'm like, screw it. I want to build stuff. Right.

Zach (19:41):

You're like, let me think back about those BB duties. Oh yeah. Those guys close eight figure contracts.

Paul (19:49):

Those guys are,

Zach (19:50):

Yeah. Those guys are easy to get eight figures from, uh, like way easier than VCs and banks.

Paul (19:55):

I remember I got a big group, 80,000 subscriptions last month, but they didn't even do anything. Yeah. AB are you sure you'll get that confirmed. Oh, okay. Yeah, I think we're on to something.

Zach (20:09):

Oh, that's awesome, man. Well, you can talk about this all day, but, uh, to stick to our normal scheduled routine, Dylan, why don't we, uh, why don't we dive into yeah. Let's,

Dylan (20:20):

Which adds y'all.

Paul (20:25):

So you sent over a killer group on posts and it seems like it's more blue box. So is this kind of y'all's original plan more or less or Aboriginal product? Yeah. Yeah. And, and, um, the reason that I selected that one is because, um, you know, there's, there's, there's, I will say this to start there's way more advertising and marketing than successes, but that was the one where it literally happened overnight. Um, and you know, there's a lot of other cool ones with strategy and, you know, one that came to mind was the ad campaign we did for Lowe's. And I remember thinking nobody's going to buy designer faucets, like what the hell? And they're like, no, we just spend enough money to force people. And like, you know, you go into any one everybody's got designer faucets. And I remember thinking it was the dumbest thing, and that was just sheer force of money to get consumers, to think about their faucet. Right. Um, but this one was cool. Cause it was just, you know, we woke up and we're like, Oh no, what do we do now? Because it was so successful.

Zach (21:28):

What made it, it was literally an overnight success or was it kind of running for a little bit, or just really happened, which launched it.

Paul (21:35):

So Groupon, you know, Groupon catches a bad rap. And it really frustrates me because I feel like most of the issues with the group are people that don't understand their margins. They don't understand their logistics. Like Groupon's an amazing tool. If you can look at Groupon, like, Hey, there's a lot of people sitting here waiting to buy, um, it's a different kind of customer, but how can we think smarter than that than the average group on user. And so we worked with Groupon for a while and I think once they saw we were legit, um, I had the attitude of like, well, let's go fly out to Groupon and just bug them and just literally keep saying like, what, what would you do if you're in our shoes? Right. And so we flew out to Chicago once or twice, and they were blown away because, you know, nobody ever flies out to Groupon to meet with their sales rep. Right. And, um, which I also just wanted to see their office. It was so strange and weird.

Zach (22:28):

I also want to highlight something that you said before the show Paul, which is people completely underestimate the power of proximity. And I definitely think that that is a really a big theme, you know, in your, in your career. And, uh, you know, how you pull that off. So proximity to Groupon, um, probably a pretty smart thing, given that they have crapped on a traffic. Yeah.

Paul (22:53):

Yeah. My, my wife would say, um, my, my, my super power is shamelessness. Um, I like to call it confidence, but, uh, you know, it's not the same, but I I'm my first gig. Um, my first gig was selling classified ads, uh, official my first official gig. Right. And I literally had to make like 40 phone calls in a day and I'm trying to up sell period people on like exclamation points. Right. And you really learn the art of, you know, after a month of getting your kicked on your classified ad sales and your, your food depends on it. Um, you really just start to learn, um, the power of just picking up the phone and then the power of meeting with people. I don't care what anybody says. Nothing is stronger than face to face and nothing is stronger. Um, after that, then the phone, right.

Paul (23:42):

Or zoom maybe. Um, and you know, that was the attitude with a lot of those. And even with group audits, you know, like, uh, everybody knows in my company that if hits the fan, I will get on a plane and I will go knock on the CEO's home door if I need to. Um, I was in a skateboarding accident and broke my foot in my hand. And, uh, I did that at like 7:00 PM and 6:00 AM the next day I was on a flight closing a contract with Clorox. Right. So like, it just, you just literally have to, I literally broke out of the hospital. They're like, you need to go into surgery. I was like, why die if I get on a plane? And they're like, what are you talking about? I was like, can you answer the question? They said, no, but it's just that thing, like, you just got to show up, you just got to do the work and show up what happened when you rolled up to, uh, Groupon.

Paul (24:34):

Oh yeah. So, um, with Groupon, when we met with them, um, the rep was finally like, okay, like they're, they're legit. And they basically said, look, you know, here's exactly what we would do, but it will crush you. You will not be able to keep up with the sales. And we're like, dude, we got this, you know, here's our inventory, you know, et cetera, et cetera. And so, uh, you know, their big thing was, um, if you can do 60% off or more, um, that really sings to people. And then if you can start doing things like lifetime blue box at $5. Right. Um, and so I forget exactly which one that I sent you was, but I think we did like three months, um, subscription free for like five or 10 or $12 a box. Right. Which was literally ended up being just like the cost for us.

Paul (25:26):

And our attitude was, well, if we get the blue box subscription box into people's hands at cost, and then the materials on the inside are driving them to come back to buy full size on our website and get repeat delivery of vitamins and supplements. That seems like a pretty good idea. So we, uh, uh, do this thing and, you know, we had some decent sales by that point, but nothing to call home about. Right. And, um, next day we wake up and, uh, you know, we had ran a bunch of group on, so, you know, nobody's really paying attention to it cause like any sort of, we're doing a million things. Um, all of a sudden my phone just starts blowing up from our sales rep and he's like, you know, third or fourth phone call, I'm walking my dog and I'm like, this must be pretty important.

Paul (26:10):

And if he's calling me and, um, didn't even remember that that ad went live and I was like, Hey, what's up man? And he goes, are you going to be able to fulfill these? And I was like, yeah, of course, what are we at right now? I haven't checked it like in the last 30, 40 minutes. And he's like, we're at 30,000. And I was like, no, like, say like not items, like how many, you know, full sales. He goes, yeah, man, we're at 30,000. Do we shut it off? We all think we should shut it off. And I was like, no, do not shut up.

Paul (26:42):

I'm in my head, like going through my mental Rolodex of like, cause we had, we had enough samples for, you know, we thought 10, 20,000 would be insane. Right? So we, we felt super competent. We'd have enough inventory. Well, this thing ends up selling like 40,000 overnight. And I think it topped out total at 60,000 and we had to have the boxes ready in like seven business days. I think our five businesses and know seven days. And so, uh, um, we literally had no idea what we're going to do and ended up being, we had to, and then we had a good sales month, so it ended up being something ridiculous. But I was like, you know, okay, panics normal, this is normal. Like how do we get now we need to get the samples. And one of the things we do is we require brands to give us samples for free.

Paul (27:33):

Um, so we get in a room and I'm like, okay. And I whiteboard out, I'm like, here's the, here's the challenge? You know, we have this many boxes, we have to get this many samples. It ends up being like 1.2, 5 million samples that we undefined and like, you know, a couple of days, and then it's gotta be six different, six different products at 1.2, 5 million. Right. And luckily, because we had been tracking everything, we knew that a sales rep could make X amount of calls in a day. We knew that if they read this script, that X amount would close or whatever. And so it was literally if we all the entire company called and did a hit list and, you know, made the calls that we would be there almost precisely at the point. And so we did like a one hour crash course on sales.

Paul (28:25):

We are developers, everybody, you name it, everybody picked up the phone and we made, you know, we were just laughing at ourselves and we're like, we're never going to do this or whatever, you know, it wasn't like a, we can't do this. It was like, well, we got to give it a shot or else we're done. Right. And so, um, as we were making the calls, one thing that dawned on me is like, statistically, you know, let's say just for a second conversation, we gotta make like a thousand calls in a week. Right. Um, I think the conventional thinking is you got to hit all those thousand calls to hit your stats of clothes and getting the samples. But in reality, you never know when those calls are gonna happen, where somebody is like, Oh yeah, I got X amount or whatever. And so I think literally in the second day we just got lucky and there was a company that changed a flavor and they had a bunch of their old flavor and inventory and we ended up finding it, I think in like four days total. And we're able to fulfill it and Groupon Groupon never knew the better. And it was a big turning point in our company. Um, but yeah, that was, that was crazy.

Zach (29:29):

It's so fun when companies get in these moments where it's all hands on deck and it's like, that is such a pivotal moment. And, uh, you're just, you rise to the occasion, right? Like as

Paul (29:42):

Entrepreneurs, sometimes we just kind of avoid those situations that we avoid avoid, avoid, but when you throw yourself into it and you just stay focused, stay in the moment. And that, that pressure is ultimately going to give you the highest level of clarity you'll ever have in your business. Absolute brilliance comes to the table. And, uh, I, I love those stories. Yeah. We have a saying, it's a common phrase, but, uh, the question is how do you eat an elephant? And the answer is one bite at a time. And that's what you do. I mean, the fact you've got developers out there cons just goes to show. That was, that was the real deal you can tell by the look on their face. They were like, I'm going to kind of fake it or whatever, but it's like, you're just at the point where like, even if they do one call that helps.

Paul (30:34):

Right. And I just imagined, I mean, they were panicked and I just imagined them, if they would have showed up and saw like, you know, people in this rinky-dink, you know, office in Lincoln, Nebraska, and there's people in closets and bathrooms making phone calls, like what the hell. But, um, that was even when I was white boarding out in my head of like, what are you doing? What are you, you know, like even I'm just like, you just be honest, like it, it did, it just kinda turned into that delirious. Like this is so stupid, but like screw it. Let's try, you know,

Speaker 4 (31:12):

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Paul (32:10):

Or a way to decrease the cost of capital checkout, add card, we'll get back to the show. That's quite a sample we got on this rich ad segment here now, while not super, super well there, let's hear about Southern that kind of crashed and burned. You know, that's kind of showcasing, we're all human, you know, of course everybody likes on killer stats, but what's some marriages did not go your way.

Speaker 5 (32:39):

Yeah. So,

Paul (32:40):

Um, you know, there's, there's, I would love to share the brand names like Disney and then all that stuff. But, you know, I'm always surprised at how much they, you know, find something on a blog and that kinda laughter man. Um, so w that, you know, we don't handle the marketing for those companies, but we work directly with them and, and, you know, we give them best practices and there's just been, especially lately, there's been so many fails. And like, you want to try to show support for like, you know, whether it's like black lives matter or everybody matters and you just like, can't win right now. Like, like whatever you do, somebody's gonna find something. So I'd say like, that's, that's, you know, happening. And there's plenty of, you know, spend 50 grand on something and zero return. And I could go through those all day.

Paul (33:28):

Cause my attitude towards marketing is like stop talking and just do it. And even if it doesn't work, you're going to at least get some sort of nugget from it. And at one point in time we had 52 different, uh, paid media things going with blue box. Um, and you know, we whittled it down to like 32 or something like that. And it was just, you know, we were doing everything. So I, I definitely have a very different take on marketing than most people. Um, more of just spraying it out there and see what lands versus, you know, let's do all the research and whatever, cause I've been on the research side and most of it's. So, um, but as far as the one that comes to mind, um, I was working at a company called complete nutrition and it was basically like a high-end, uh, GNC.

Paul (34:15):

Um, we had grown from three to 83 million in about two years. We were franchising. We, when I started, I think we had, you know, eight stores, something like that. Um, when I left, we had like 250 stores and another three 50 sold. I mean, it was, it was insane. It was like Wolf of wall street, but without all the drugs and the people, it was mostly pre-workout and super happy salespeople. So imagine the Wolf of wall street with, uh, you know, supplements and nice people. That's what it was like. Um, and so here I am, um, no, I had no business whatsoever being the head of marketing truly. I was like 26. I was designing the stores. I was writing all the radio ads and it was working, everything was working and our radio ads were just absolutely crushing it. And we were doing zero online sales.

Paul (35:12):

So I'd been pushing forever to do online sales. Uh, finally got a site launched e-commerce, you know, first month or two, we did like 350 K in sales. Um, and so then I'm like, we need to do this big digital marketing campaign. Right. And so we spend forever, we hired the best firm. We do everything as you know, we sent out seven RFPs. I mean, we did the whole shtick, right. Um, we ended up selecting a firm, it came out to like $3.2 million in advertising. Um, we start running this campaign and we dumped a quarter of a million into it. And we were spending, I think a hundred care more in the process of spending that. And we had already basically purchased all our media buying. So, you know, a month or two goes by and 250 K and literally zero sales from it. And I, this day, I don't know if it was like a tracking error. I don't know what it was, but I spent every day and night trying to figure out like, why aren't these ads working? Why aren't these? And I understand the whole, like, you know, you gotta be patient or whatever, but I'm telling you, like, we weren't even getting like traffic from this. We were getting like 12 heads. And I'm like, how do you pump a quarter million into something? And you get like 12 website visits, like what the is going on? Sorry. I hopefully believe me.

Paul (36:45):

So, you know, we're, I'm just like dying. Right. And, and, uh, our CEO, uh, basically sends me an email and he's like, Hey man, like, you know, saw this spend and you know, can you tell me whatever? So I gave him a breakdown. I tried to talk to him, but he was busy and, um, Friday rolls around and this company was not shy to let people go. And so I'm literally got my own banker's box and I started kind of putting some in it. Cause I was like, there's no way I'm going to be here anymore. And uh, I saw the CEO come and I was like 4:00 PM right on time, you know? So I had the box and I sit down at my desk. I'm like, this is it. And I was making a grip of cash at 26. I mean, it was crazy.

Paul (37:28):

And he walks by and he goes by and I was like, no way that happened. And then he kind of backpedaled and he put his hand on the door, on the side of the door and he goes, he call me big PS, Hey, big P or a quarter of a million, then like a dozen websites. And I go, yeah, he goes, what are you going to do? I was like, we just got to shut it off, man. He goes, yeah, I think that's a good idea. Know. So we're just out a quarter of a million dollars and then said probably some more, we're going to, it's going to be tough to get the ad buy back. And he goes, it kind of taps the door and he looks up and he smiles at me. He goes, I don't want to happen again. Okay. When I was like, yeah, he goes, all right, man, I'm going to weekend any walks off.

Paul (38:10):

And I was like, what the? Just now? And I was like, just sitting there. Okay. Does HR come or whatever. And that, that was literally the end of the conversation. And so here, I'm thinking like, man, I see people get fired all the time. And they were basically, you know, after I've talked to some people, they said, look, you know, CEO usually gives people like two chances, right. If they screw up and if they do the same thing or they have another screw up, you're gone. But like that was, you're like, don't let it happen again. It was a big one. And that attitude, I mean, I will take that the rest of my life. I'm just like truly giving people the reigns, letting them fail and moving on. And, and that is the story almost of our company. And, you know, as for the ad by, I mean, it was like the classic, you know, as like by all these Google terms, um, by all these, you know, uh, um, add boxes on the side, retargeting, I mean, you name it.

Paul (39:07):

It was everything. And even the agency that we were working with was just like, we don't know what the going on. So, um, that was, that was pretty Epic. And um, yeah, we, we had a similar story happened at Bouley where we bought an ad by podcast by, and it was like 50 K zero, actually one, one redemption. And, uh, I remember I just went to the person. I was like 50 K. Oh yeah. And they're freaking out. I was like, yeah, just like, don't let that happen again. Okay. And now it's like their story, right. Or like that, that goes throughout the, yeah. It echoes throughout the company and it's like, man, you know, fail fast, fail hard. And it's a lesson, not a failure. And, and um, I would even say like, we're okay with people failing quite a bit. It's just, you know, I even say, you know, like you got about three times that you can fail at the same thing, but after the third time, if it's the same thing, it's kind of like, okay, what's going on there? So that's what I,

Zach (40:05):

Yeah. I love it. That's amazing. It's an Epic failure story. So, uh, this next segment, uh, what I said, you know, before, before the podcast, um, you were born for this segment, Paul, uh, you know, part of, part of what we're trying to do here with the Richard port podcast is, is bring more, you know, financial management strategies, cashflow management strategies, and really just financial education for business owners and really infusing that conversation and into advertising and marketing. Uh, w we think that those two worlds don't interact or collide enough. And, uh, yeah, so it's a fairly open-ended question, but, uh, really, um, curious and where, where you would take it for, you know, the subscription e-commerce business. That's, you know, that's growing quickly, that's, that's tapped into, you know, Shopify capital tapped into, you know, clear bank they've tapped into, you know, all the different tech companies out there. And they're wondering what's next, you know, is this all there is?

Paul (41:23):

Yup. So I would say that the first thing I want to start off by saying, and it's humbling to say this, but I think it's important. Um, I think the first thing people need to do is they need to just have a conversation themselves and really understand what are you good at and what are you challenged with and where are you going to focus your time? And for me, um, I actually have dyscalculia, which is basically dyslexia for numbers, and you can go back to grade school, high school, college, I mean, you know, A's, and it came to math and it was like an effort to see that was pretty much CDR and Ave was basically like, what, what did I need to do to play football in college is I need to go. And I just, I always have struggled with it. And I didn't know what it was until my brother who's a doctor, what threw me like I was a morning, well, you have dyscalculia, you know that right.

Paul (42:10):

And I was like, what? And he explained to me, and I looked it up at like 34 and I'm 39 now. And I was like, Oh my God, that is exactly. And it's really quirky things, right. That are like, um, give it away that you have it. But I, I would describe it as, I'm not sure how most people do numbers, but I have like a visual when I, you know, words and numbers are in like, uh, think of them visually. Now I'm trying not to think of them right now. Um, and so like getting a string of numbers and visually, and holding it on my head or an algorithm, or I'm sorry, uh, like any sort of like math problem. Um, it's really hard for me to like, you know, do a formula and hold that in my head and do another formula. So I'm, I am terrible at math.

Paul (42:51):

Now, what I am good at is understanding where we are and where we need to end up. And then I get people to help me figure out the in-between part. And so, so many CEOs that I meet that are visionary or creative or whatever, they have a natural propensity to, to, to steer clear of math and numbers. And I just like to tell people, like I was that guy painfully, um, if somebody starts talking finance and numbers, now I literally have to tell myself like pay attention, right. Like classes in session and ask dumb questions. And so I think it's important to state that to people. And, and I think the same reason that I'm kind of okay on it is because, you know, I have to focus on it now that said, um, there's a lot of different ways to go with this, but I'll go to what I think was the most enlightening

Speaker 6 (43:42):

For us in particularly, uh, in regard to

Paul (43:45):

Raising capital and understanding how VCs thought about things. Um, and a lot of people know the CAC to LTV payback formula or the cocktail TB ratio, which, um, you know, there's a lot of different ways to say it, but the way that I say it is, um, once your lifetime value of a customer is three times or greater than the customer acquisition costs to get that customer. And you can pay that back in less than 12 months, you can pay that CAC back in 12 months, you have a subscription business. Um, some people might argue, well, your lifetime value needs to be six X, um, of the CAC. And you've got to pay that back in six months or whatever it is. And is it software? Is it CPG? And here's what I'm here to drop the on everybody. It doesn't matter. And let me tell you why, what matters is knowing what your CAC to LTB is, and then knowing how long it takes you to pay back that CAC.

Paul (44:45):

Now here's the deal the way that I have seen, and I've seen it firsthand because we've almost acquired companies. I've got my hands on internal documents. Um, I am really trying hard to not name names now, but, um, one of the larger subscription box companies, um, actually I'll just give you a kind of a, I'll call it, you know, subscription box X. And I'm just going to kind of grab different things from these really large subscription boxes that everybody knows. But what we've seen is that some of these companies are consider literally website traffic as their CAC. And that blew me away. A lot of them consider emails as a customer acquisition. And here I am thinking like, Oh no, it's just gotta be straight up money in money out, like at the end of the day. And that is not the rules that everybody else is paying by.

Paul (45:41):

Probably the most painful one that I saw was, um, Oh, it takes us, uh, uh, I don't know what it was like $2 and 34 cents to get a customer, the lifetime values, $880. And we pay that back instantly when they click. Right. And then you read everything and you ask questions and you go, okay. So you're telling me it costs you $2 and 34 cents to get somebody to go to your site. And based off of really your opinion, they're gonna stick with you for years and spend $800. And you're just saying, as soon as, you know, a different segment makes a purchase, that's the payback. And they're like, well, I guess if you want to say it that way, and I'm like, well, that's the correct way to say that. Right? So, you know, really, it all depends on how are you defining CAC? How are you defining your LTV and how are you defining those things?

Paul (46:32):

And once you do that, that is when you really start to become powerful. And I really do think that you have two sets of that formula. You have one that we call it the trophy formula, right? And you can make CAC your website, traffic, your email lists, like I don't care, whatever you want to call that you, you could, you know, truth told, well, you make that number, look as great as you can. You better sure make that, make sure that you can, you know, define those terms in defendant, in a room. But what you really also need to do is create a number that is what are you truly spending in paid marketing to get a customer, okay. Now your lifetime value, is that going to be a gross profit? Is that going to be contribution margin? Like, what is that number going to be?

Paul (47:20):

Is that going to be, you know, just net, is it going to be EBITDA? Like, what is it going to be? Right. Um, get us close to the real thing as you can. And then be honest with yourself on the payback. And don't consider that payback until you actually put and keep that money in the bank. And so now what you have is your glorious CAC to LTV public investor. Look at me, I'm awesome formula. But at the end of the day, the rules that your team is operating by is a true money in money out. We made this money, cactus, LTB, payback formula. And that's why when you read what I call business porn online, which is like tech crunch and Mashable, and you look at these like CAC to LTV ratios, or, you know, people talk about it. You're like, how the hell did they do that?

Paul (48:07):

Well, the answer is, you don't know how they're defining tack. You don't know how they're defining LTV. They probably have a PR team that is very good. And you're never going to know it because you're never going to have access to QuickBooks. Right. Um, man, the amount of people in due diligence that don't actually cross check what you're saying in a deck with your QuickBooks is embarrassing for them. Um, when I think about it, right? And so I think that's one of the most important things in a subscription, um, is simply defining your formula, holding your internal team accountable for it. And if you need to go make that flashy, CAC LTV for the world, but do not do not operate by that internally because you're just, you're not operating in reality.

Paul (48:57):

Just let that sink in everybody. Let's take a moment of silence. We, we talked about that last week. The other thing, the other thing that comes up, um, this is going to sound like a sales pitch too. But, uh, harvest, uh, Harvard business has like a little series of books that are like the two minute finances or whatever it is. And then they're really kitschy little books that are all over their website. And man does those, I read almost once a month as a refresher because it really explains, you know, uh, uh, what's their, what's their praise. If you gotta be able to explain it to a golden retriever, right. Um, it really does break down like revenue is this cognizance gross profit is this. And that's always just a really good refresher for me. And I think it would benefit a lot of people and the books are super simplified for everybody.

Paul (49:53):

And once you, once you start to think about your definition of CAC and LTV, and you start applying that to cogs and gross profit, and you want to think everybody's playing by the same rules, but either through miseducation or them not caring or them assuming or them knowing and not being honest, um, you really have to dig into how people are defining their terms, which full circle is why the financial model that we created. I'm so adamant anything that our team does in Excel, man, if they don't have a definition or a note within any term they use, I mean, they just get an email from me and like, I don't know what it says. Like, I know what you're saying with operating expense, but like, I need to know that, you know, that we're all playing by the same set of rules. So you gotta copy and paste it or define it.

Paul (50:44):

And man, the amount of times that we see people, you know, just a little bit off or not able to explain it, um, you know, it's, it's, uh, uh, and I'm, I'm one of those people too, right? Um, it just really helps you understand, um, how crucial that is for your entire team. Uh, not, not an entire team, but for the people that are dealing with money and the people that are frankly like collecting invoices and stuff. Like they, they'd got to have a grip on that because at the end of the day, you can look them in the face and say, that's your money? You know, you knowing what profit margins are acceptable, like that's you saying, this is acceptable for my salary or my bonus or whatever. And once, once you start connecting the dots of why they got to stick to their guns and a price, or why they got to get invoices paid on time and you can draw that line directly to their paycheck, will change real quick.

Zach (51:39):

Oh, there you have a man. Paul you've been in

Paul (51:41):

Amazing. Yes. I love all the insights

Zach (51:44):

Back then. Some legends. I love it. So tell everybody a little bit about, uh, what you're up to next

Paul (51:54):

Listeners can get in touch. Well, I got to choose the line, but it works. And I just say, um, if you or anybody, you know, is talking about subscriptions or fulfillment, literally go to hit up paul.com and book a time with me and our sales strategy is get people, the answers they're searching. And if it happens to be us great, if not make that experience great so that they go tell other people about us and you know, it works pretty well for us.

Zach (52:22):

I love it. Thank you so much, Paul.

Paul (52:27):

Uh, one of seven Dillon's, you're the one and only in my heart and in my mind, um, Zach, you're getting there, but I appreciate you guys. Thank you so much. Thanks for everybody listening to my a madman ramps. Appreciate it.

Zach (52:40):

Take care, man. That was killer y'all. Thanks so much for listening to another episode of the rich add or ed podcasts. If you're like me and listen to podcasts on the go, go ahead and subscribe on Apple podcasts, Spotify, YouTube, and rich dad, poor dad.com/podcast. And if you absolutely love the show, go ahead and leave a review and a comment share with a friend. If you do take a copy screenshot of it, email me zack@funneldash.com. Show me you left a review. I'll give you a free copy of the rich ad for ed book to learn more about the book, go to rich ed for a.com to leave a review that a rich ad for at.com/review. Thanks again.